diff --git a/README.textile b/README.textile
index 64c0144..a329de0 100644
--- a/README.textile
+++ b/README.textile
@@ -70,6 +70,10 @@ Configuration is stored within the @config/environments@ directory of your Rails
 app. Files ending in ".yml" are loaded from the @common/@ subdirectory and a
 subdirectory named after the current environment.
 
+Configuration files are preprocessed as ERB, in the same way that Rails
+preprocesses @config/database.yml@. This allows dynamic configuration,
+e.g. @host: <%= ENV["DB_HOST"] || "localhost" %>@.
+
 Each file goes into its own hash in the configuration. For example, if you
 placed a file called @memcache.yml@ within @config/environments/development@,
 you would be able to access your Memcache timeout using
diff --git a/lib/configoro.rb b/lib/configoro.rb
index 6b5cb2e..07fc834 100644
--- a/lib/configoro.rb
+++ b/lib/configoro.rb
@@ -1,5 +1,6 @@
 raise "Configoro must be used in the context of a Rails 3 application" unless defined?(Rails)
 
+require 'erb'
 require 'yaml'
 require 'bundler'
 Bundler.setup
diff --git a/lib/configoro/hash.rb b/lib/configoro/hash.rb
index b61d5ba..66cdbc2 100644
--- a/lib/configoro/hash.rb
+++ b/lib/configoro/hash.rb
@@ -30,7 +30,7 @@ def <<(hsh_or_path)
       when String
         raise ArgumentError, "Only files ending in .yml can be added" unless File.extname(hsh_or_path) == '.yml'
         return self unless File.exist?(hsh_or_path)
-        data = YAML.load_file(hsh_or_path)
+        data = load_preprocessed_yaml(hsh_or_path)
         deep_merge! File.basename(hsh_or_path, ".yml") => data
       when ::Hash
         deep_merge! hsh_or_path
@@ -146,4 +146,9 @@ def remove_getter(meth)
 
     raise NameError, "undefined local variable or method `#{meth}' for #{self.inspect}"
   end
+
+  def load_preprocessed_yaml(path)
+    YAML.load(ERB.new(IO.read(path)).result)
+  end
+
 end
diff --git a/spec/configoro/hash_spec.rb b/spec/configoro/hash_spec.rb
index 547cf91..ea3122e 100644
--- a/spec/configoro/hash_spec.rb
+++ b/spec/configoro/hash_spec.rb
@@ -95,6 +95,11 @@
       subject << "example.yml"
       subject.should be_empty
     end
+
+    it "should preprocess YAML file as ERB" do
+      subject << "#{File.dirname __FILE__}/../data/config/environments/common/erb_test.yml"
+      subject.erb_test.sum.should == 2
+    end
   end
 
   describe "#deep_merge!" do
diff --git a/spec/configoro_spec.rb b/spec/configoro_spec.rb
index 4c95f64..58a69e0 100644
--- a/spec/configoro_spec.rb
+++ b/spec/configoro_spec.rb
@@ -34,7 +34,7 @@ module MyApp; end
     it "should not complain when there is no directory for the current environment" do
       Rails.stub!(:env).and_return('unknown')
       Configoro.initialize
-      MyApp::Configuration.should eql({"basic"=>{"common_only"=>"common", "env_name"=>"common"}, "hash_test"=>{"akey"=>"value", "subhash"=>{"key1"=>"val1", "key2"=>"val2"}}})
+      MyApp::Configuration.should eql({"basic"=>{"common_only"=>"common", "env_name"=>"common"}, "erb_test" => {"sum" => 2}, "hash_test"=>{"akey"=>"value", "subhash"=>{"key1"=>"val1", "key2"=>"val2"}}})
     end
   end
 end
diff --git a/spec/data/config/environments/common/erb_test.yml b/spec/data/config/environments/common/erb_test.yml
new file mode 100644
index 0000000..242d6f5
--- /dev/null
+++ b/spec/data/config/environments/common/erb_test.yml
@@ -0,0 +1,2 @@
+---
+sum: <%= 1 + 1 %>